Research >> Economics

Philadelphia Fed Outlook Reported Activity increased in March


Manufacturing conditions in the region improved this month, according to firms responding to the March Manufacturing Business Outlook Survey. The indicators for general activity, new orders, and shipments returned to positive territory, while the indicator for employment remained positive. Price pressures also moderated, according to the surveyed firms. Most of the survey’s indexes for future conditions continued to moderate, but the firms remained generally optimistic about growth over the next six months.

Most Current Indicators Rebound
The index for current manufacturing activity in the region increased from a reading of -4.1 in February to 13.7 this month. The index nearly recovered its decline from last month, when it dropped to its first negative reading in almost three years (see Chart 1). Both the new orders and shipments indexes also increased this month. The current new orders index improved modestly, increasing from -2.4 in February to 1.9 in March. The current shipments index increased 25 points to 20.0.

The firms continued to add to their payrolls this month. The current employment index, however, decreased from a reading of 14.5 in February to 9.6 this month. Nearly 20 percent of the responding firms reported increases in employment, while 10 percent of the firms reported decreases in employment. The current workweek index remained positive and increased 6 points to 10.6.

Price Pressures Continue to Moderate
Price pressures arising from purchased inputs continued to ease. The prices paid index decreased 2 points to 19.7. The prices paid index declined for the eighth consecutive month and is at its lowest reading since July 2017 (see Chart 2). Nearly 24 percent of the firms reported higher input prices this month, down from 28 percent last month. With respect to prices received for firms’ own manufactured goods, 26 percent of the firms reported higher prices, down from 33 percent last month. The prices received index decreased 3 points to 24.7.

Firms Less Optimistic but Still Expect to Expand Employment
The diffusion index for future general activity declined nearly 10 points to 21.8 this month, its lowest reading since February 2016 (see Chart 1). Nearly 42 percent of the firms expect increases in activity over the next six months, while 20 percent expect declines. The future new orders index also decreased 10 points, and the future shipments index decreased 19 points. The future employment index edged up 1 point to 24.9. The percentage of firms expecting to increase employment over the next six months (38 percent) remained higher than the percentage expecting to decrease employment (13 percent). The future capital spending index fell 12 points to 19.5, its lowest reading since November 2016.

Firms Report Increasing Difficulties Finding Skilled Workers in Tight Labor Market
In special questions this month, the firms were asked generally about worker shortages, any perceived mismatches between skill requirements and labor supply, and how they were dealing with these problems. Nearly 74 percent of the firms indicated labor shortages, while 66 percent indicated skills mismatches between requirements and available labor. Nearly 51 percent of the surveyed firms also reported that they had positions that have remained vacant for more than 90 days. Over 47 percent of the firms indicated a tightening of the labor market, such that it is getting harder to fill positions, up from 35 percent when the question was asked last year. In addition to increasing wages and stepping up recruiting efforts, the firms have adopted a mix of strategies to deal with these problems, including increasing training of existing employees and new hires as well as recruiting outside the region. A sizable share of firms (30 percent) indicated that they have hired less qualified workers to meet their labor requirements.

Summary
The firms’ responses indicated some growth in the region’s manufacturing sector this month. The survey’s broadest measures for activity, new orders, and shipments were positive and recovered from negative readings last month. On balance, the firms continued to report growth in employment. The survey’s future indexes indicate that respondents continue to expect growth over the next six months, but most readings have been trending lower.





Posted: March 21, 2019 Thursday 08:30 AM




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